Endogenous randomness emerges from adversarial market learning.
problem Market randomness
method Deterministic adversarial market model
result Out-of-sample profitability collapses to zero.
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48 results for “endogenous traders”
Sornette-Ide model for markets: Trader expectations as imaginary partcond-mat.stat-mech
A nonlinear differential equation of Sornette-Ide type with noise, for a complex variable, yields endogenous crashes, preceded by roughly log-periodic oscillations in the real part, and a strong increase in the imaginary part. The latter is interpreted as the trader expectation.
ABIDES-MARL uses MARL to study market behavior in a realistic financial simulation.
problem Understanding equilibrium behavior in complex financial market games.
method Combines MARL with a realistic LOB simulation to study market behavior.
result Validated approach by solving an extended Kyle model and showing how execution strategies shape market dynamics.
Existence of incomplete Radner equilibrium with endogenous noise tracker.
problem Existence of incomplete Radner equilibrium in a model with endogenous noise tracker.
method Proved existence through a coupled system of ODEs, reduced to two coupled ODEs.
result Endogenous noise tracker leads to higher aggregate welfare for large stock supply.
Study shows bifurcating price dynamics in ASME with traders.
problem Understanding price dynamics in artificial stock markets.
method Agent-based model of endogenous traders interacting through a LOB.
result Bistability in price equilibria: zero-price and persistent positive-price states.
Model strategic interactions between market makers and traders to optimize execution.
problem Optimizing execution in markets with strategic interactions.
method Stochastic game modeling with FBSDEs and decoupling approach.
result Established Nash equilibria and global well-posedness for specific models.
Statistically validated lead-lag networks and inventory prediction in the foreign exchange marketq-fin.TR
We introduce a method to infer lead-lag networks of agents' actions in complex systems. These networks open the way to both microscopic and macroscopic states prediction in such systems. We apply this method to trader-resolved data in the foreign exchange market. We show that these networks are remarkably persistent, w…
Thanks to the access to labeled orders on the Cac40 index future provided by Euronext, we are able to quantify market participants contributions to the volatility in the diffusive limit. To achieve this result we leverage the branching properties of Hawkes point processes. We find that fast intermediaries (e.g., market…
We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and maximize their constant relative risk aversion expected utility with respect to thei…
The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations. We find occurrences of non-stationary chaos, or speculative bubble, are caused by the heterogeneity of traders' strategies. Furthermore, we show that the distributions of returns gene…
Blockchain markets with paid-priority trading can lead to biased prices and reduced liquidity.
problem Discrete clearing and paid-priority in blockchain markets lead to biased prices and reduced liquidity.
method Developed a model to evaluate the viability of blockchain markets under discrete clearing and paid-priority.
result Paid-priority ordering induces endogenous selection, leading to biased prices and reduced liquidity.
Market efficiency, informational asymmetry and pseudo-collusion of adaptively learning agentsecon.TH
Study examines how traders with asymmetric information and adaptive learning strategies affect market efficiency.
problem Effect of traders' strategic behavior on market efficiency and informational asymmetry.
method Examines a market with boundedly rational, asymmetrically informed traders using multiarmed bandit algorithms.
result Strategically acting traders can lead to more efficient markets than purely competitive ones under certain conditions.
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders, composed by chartists and fundamentalists, and focus on the role of informative…
AI traders learn to exploit meta-orders from slower traders, increasing their profits.
problem Adverse selection of medium-frequency traders by high-frequency AI agents.
method Reinforcement learning in a Hawkes LOB model, with impulse control and PPO.
result AI agents can learn to capitalize on meta-orders, increasing their profits.
We propose a formula of time-series prediction by means of three states random field Ising model (RFIM). At the economic crisis due to disasters or international disputes, the stock price suddenly drops. The macroscopic phenomena should be explained from the corresponding microscopic view point because there are existi…
New method identifies algo trading strategies as liquidity consumers or providers.
problem Determining if algo trading strategies consume or provide liquidity.
method Analyzes trade and price history to classify strategies as liquidity consumers or providers.
result Identifies net liquidity consumption or provision of algo trading strategies.
We model a nonlinear price curve quoted in a market as the utility indifference curve of a representative liquidity supplier. As the utility function we adopt a g-expectation. In contrast to the standard framework of financial engineering, a trader is no more price taker as any trade has a permanent market impact via a…
The paper studies an oligopolistic equilibrium model of financial agents who aim to share their random endowments. The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all the participating agents. In the complete-market setting, each agent's set of st…
Study analyzes market equilibrium returns with price impact and transaction costs.
problem Modeling equilibrium returns in markets with strategic order placement and transaction costs.
method Analyzes frictionless and transaction-cost markets, characterizes Nash equilibrium via FBSDEs.
result Equilibrium returns are affected by transaction costs, especially with noise traders.
Optimal trading strategy under market resistance and concave price impact model.
problem Optimal trading in a market with endogenous resistance and concave price impact.
method Modeling market resistance, deriving a stochastic Fredholm equation, proving existence and uniqueness, proposing an iterative scheme.
result Existence and uniqueness of optimal control under certain conditions, exponential convergence of iterative scheme.
The purpose of this paper is to advance the understanding of the conditions that give rise to flash crash contagion, particularly with respect to overlapping asset portfolio crowding. To this end, we designed, implemented, and assessed a hybrid micro-macro agent-based model, where price impact arises endogenously throu…
Study shows informed traders harm market makers but price discovery benefits outweigh costs.
problem Informed traders' impact on market makers' profitability.
method Agent-based model with heterogeneous learning agents, multi-agent reinforcement learning.
result Informed market order flow is harmful when aggregate informedness is low but beneficial as it increases.
The paper tackles reinforcement learning with exogenous variables and rewards.
problem Exogenous state variables and rewards slow reinforcement learning by introducing uncontrolled variation.
method Formalizes exogenous state variables and rewards, decomposes MDP into exogenous and endogenous components, and introduces algorithms to discover these components.
result Optimal policies for the endogenous MDP are also optimal for the original MDP, but the endogenous MDP is easier to solve due to reduced variance.
Study high-frequency trading game with price impact, finding unique equilibrium.
problem Optimal execution in a trading game with transient price impact.
method Analyzes high-frequency limit of an -trader optimal execution game.
result High-frequency limit converges to a continuous-time model with quadratic costs.
Transformers can handle endogeneity in linear regression using IV methods.
problem Endogeneity in in-context linear regression models.
method Transformer architecture with gradient-based bi-level optimization and in-context pretraining.
result Transformers provide more robust predictions and estimates than 2SLS in endogenous scenarios.
Model optimal liquidation in asset bubbles with varying entry times.
problem Optimal liquidation in asset bubbles with variable entry times and exogenous crashes.
method Mean field game (MFG) with varying entry times and progressive enlargement of filtrations.
result Existence of MFG equilibria and decomposition of equilibrium strategies.
Easy conditions found for simplifying complex systems.
problem Linearizing complex two-input systems.
method Endogenous dynamic feedback with a dimension of at most two.
result Necessary and sufficient conditions for linearizability.
New findings allow infinite mean intensity Hawkes processes to be stable.
problem Stability condition for Hawkes processes with infinite mean intensity.
method Analysis of Quadratic Hawkes processes with infinite mean intensity.
result Quadratic Hawkes processes are always stationary with infinite mean intensity when total endogeneity ratio exceeds unity.
Study shows HFT benefits large traders under certain conditions.
problem Influence of high-frequency traders (HFTs) on large traders.
method Analyzes the impact of HFT front-running on large traders under different conditions.
result HFT benefits large traders when there is high-speed noise trading and vague HFT predictions.
Investigates market dynamics with informed traders and high-frequency traders.
problem Trading large orders in a market with multiple high-frequency traders.
method Analyzes a three-period Kyle's model with a normal-speed informed trader and multiple anticipatory high-frequency traders under different inventory pressures.
result Surprising results: improving HFTs' speed or prediction can harm them but benefit the informed trader.
We examine optimal execution models that take into account both market microstructure impact and informational costs. Informational footprint is related to order flow and is represented by the trader's influence on the flow imbalance process, while microstructure influence is captured by instantaneous price impact. We …
Endogeneous Versus Exogeneous Shocks in Systems with Memorycond-mat.stat-mech
Systems with long-range persistence and memory are shown to exhibit different precursory as well as recovery patterns in response to shocks of exogeneous versus endogeneous origins. By endogeneous, we envision either fluctuations resulting from an underlying chaotic dynamics or from a stochastic forcing origin which ma…
This paper models financial contagion with endogenously determined market liquidity.
problem Financial contagion and its impact on market liquidity during price drops.
method Developed a joint clearing system for interbank payments, asset prices, and market liquidity, with endogenous market capacity.
result Endogenous market liquidity significantly affects system risk during financial contagion.
Endogenous business cycles explain higher comovement across countries.
problem Standard models struggle to explain high comovement in business cycles across countries.
method Developed a demand-driven reduced-form model with strategic complementarities and international trade linkages.
result Combining endogenous business cycles with exogenous shocks matches empirical comovement levels.
Study classifies stock price jumps as exogenous or endogenous using news data.
problem Differentiating between exogenous and endogenous price jumps.
method Synchronized news data with order book data to analyze stock price movements.
result Exogenous jumps are abrupt and follow a decaying power-law, while endogenous jumps are progressively accelerating.
In this article we consider the volatility inference in the presence of both market microstructure noise and endogenous time. Estimators of the integrated volatility in such a setting are proposed, and their asymptotic properties are studied. Our proposed estimator is compared with the existing popular volatility estim…
The paper extends option pricing theory for markets with informed traders.
problem Discontinuity in option pricing for markets with informed traders.
method New models for option pricing in complete markets considering informed traders' information on stock price direction and return mean.
result The discontinuity puzzle in option pricing is resolved using continuous diffusion price processes.
An informed broker optimizes trading strategies in a market influenced by many traders.
problem Optimizing trading strategies for an informed broker in a market with many traders.
method Developed a mean-field game approach to derive equilibrium strategies for both the broker and traders.
result The broker's optimal strategy involves a Stackelberg equilibrium, leading and traders following.
Stochastic Online Instrumental Variable Regression: Regrets for Endogeneity and Bandit Feedbackcs.LG
New method tackles endogeneity in online learning with improved regret bounds.
problem Endogeneity in real data due to omitted variables, strategic behaviors, etc.
method O2SLS (Online Two-Stage Least Squares) for Instrumental Variable (IV) regression.
result O2SLS achieves identification and oracle regret bounds for stochastic online learning.
Test for linearizing 2-input systems with 2D feedback.
problem Linearizability of two-input systems by feedback.
method Algorithmic test for 2D endogenous feedback.
result Systematic derivation of flat outputs.
Study Nash equilibrium between broker and trader in a lit exchange with price impact.
problem Optimizing trading strategies between informed and uninformed traders with broker's inventory penalties.
method Characterized Nash equilibrium through FBSDEs, solved explicitly.
result Explicit solution to trading strategies of broker and informed trader.
PRZI traders adapt their quote-prices based on a strategy parameter s, affecting market dynamics.
problem Understanding the dynamics of continuous double auction markets with adaptive traders.
method Introduced a new zero-intelligence trader PRZI that uses a parameterised probability distribution to generate quote-prices. Used a stochastic hill-climber algorithm to adapt strategies based on market conditions.
result The co-evolutionary dynamics of PRZI traders can lead to rich and complex market behaviors, including periods of stability and change.
Study shows unique linear equilibrium in market with constrained trader.
problem Unique equilibrium in financial market with constrained trader.
method Linear equilibrium model with competitive market makers and noise traders.
result Equilibrium uniquely determined by two state variables.
Paper corrects bias in online learning algorithms with endogenous data.
problem Dynamic selection problems in online learning algorithms with endogenous data.
method Instrumental-variable-based algorithm to correct bias, proving central limit theorem.
result Obtains true parameter values and low regret levels.
Volatility fingerprints of large shocks: Endogeneous versus exogeneouscond-mat.stat-mech
Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from financial crashes such as Oct. 1987 as well as smaller volatility bursts? Using a …
Modeling market dynamics with informed and uninformed traders and fads.
problem Optimizing market making in a market with fads, informed, and uninformed traders.
method Characterizing the optimal liquidity provision problem in a market with fads, informed, and uninformed traders, considering both complete and partial information.
result The price of liquidity is a function of the proportion of informed traders, and strategies ignoring fads underperform.
A new boosting method corrects endogeneity bias in instrumental variable regression.
problem Endogeneity bias in instrumental variable regression.
method Causal Gradient Boosting (boostIV) that builds on gradient boosting algorithm.
result boostIV is consistent and performs well in finite samples compared to other methods.
Solves a game between brokers and informed traders using stochastic differential equations.
problem Optimizing wealth in a game between brokers and informed traders with private signals.
method Closed-form solutions to a mean-field game using forward-backward SDEs.
result Optimal trading strategies for both brokers and informed traders are found.